Sweet Company offers an MP3 download (seven-single medley) as a premium for ever
ID: 2396376 • Letter: S
Question
Sweet Company offers an MP3 download (seven-single medley) as a premium for every 6 candy bar wrappers presented by customers together with $3.00. The candy bars are sold by the company to distributors for 30 cents each. The purchase price of each download code to the company is $2.75. In addition, it costs 50 cents to distribute each code. The results of the premium plan for the years 2017 and 2018 are as follows. (All purchases and sales are for cash.)
2017
2018
a) Prepare the journal entries that should be made in 2017 and 2018 to record the transactions related to the premium plan of the Sweet Company.
b)Indicate the amounts for each accounts, and classifications of the items related to the premium plan that would appear on the balance sheet and the income statement at the end of 2017 and 2018.
Amount
Account
2017
2018
Classification
2017
2018
MP3 codes purchased 315,000 415,800 Candy bars sold 2,636,300 2,480,500 Wrappers redeemed 1,512,000 1,890,000 2017 wrappers expected to be redeemed in 2018 365,400 2018 wrappers expected to be redeemed in 2019 441,000Explanation / Answer
2017 Date Journal Entry Debit Credit Purchase (315000*2.75) 866250 To Cash 866250 Distribution costs(315000*0.50) 157500 To Cash 157500 Cash(2636300*0.50) 790890 To Sales 790890 Premium Expense 756000 To Inventory premiums(1512000/6*3) 756000 Premium Expense 182700 To Estimated liability premiums(365400/6*3) 182700 2018 Date Journal Entry Debit Credit Purchase (415800*2.75) 1143450 To Cash 1143450 Distribution costs(415800*0.50) 207900 To Cash 207900 Cash(2480500*0.30) 744150 To Sales 744150 Premium Expense 945000 To Inventory premiums(1890000/6*3) 945000 Premium Expense 220500 To Estimated liability premiums(441000/6*3) 220500 Account 2017 2018 Classification Inventory of premium 756000 945000 Liability Premuim Liability 182700 220500 Liability Premium Expense 938700 1165500 Expense
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